STOCK MARKET CRASH

1929

The Crash BEGINS Oct. 21, 1929- Stock

market plunged, brokers made margin calls, customers put stocks up for sale

Oct. 24 (Black Thursday)- Market plummeted further

Oct. 29 (Black Tuesday)- Stock market took a deeper dive ($10-15 bil. drop in value)

Stock Market Crash (the cycle)1. Stock values collapsed2. Banks lost money on their investments3. Speculators defaulted on their loans4. Banks cut back on loans they made5. Less credit available (money to borrow)6. Banks didn’t insure bank deposits7. Customers lost their savings & banks collapsed8. Economy went into a recession (economic

slowdown)

Quote on the Depression “The Great Depression began in 1929 when the entire world

suffered an enormous drop in output and an unprecedented rise in unemployment. World economic output continued to decline until 1932 when it clinked bottom at 50% of its 1929 level. Unemployment soared, in the United States it peaked at 24.9% in 1933. It remained above 20% for two more years, reluctantly declining to 14.3% by 1937. It then leapt back to 19% before its long-term decline. Since most households had only one income earner the equivalent modern unemployment rates would likely be much higher. Real economic output (real GDP) fell by 29% from 1929 to 1933 and the US stock market lost 89.5% of its value.”

Choices the banks had made Banks had lent money

to stock speculators

Many banks had invested depositors’ money in the stock market, hoping for higher returns

Disparity of income 2/3 of families earned

less than $2,500 a year

Top 5% of Americans earned 30% of the nation’s income

Wrong Decisions and Resulting Problems

1. Installment plan- customers make small down payment & the rest in monthly installments

2. Buyers paying off their debts forced them to reduce other purchases

3. Low consumption led manufacturers to cut production & lay off employees

Wrong Foreign Policy Decision Hawley-Smoot Tariff-

raised import taxes & hoped to help American farmers. In response, foreign

nations stopped purchasing American goods

Farming Economy Collapses Farmers mortgaged

their land to pay for seed, feed, & equipment

After WWI, prices sank so low, farmers couldn’t even earn back their costs or make a profit

Between 1930-1934, creditors foreclosed on nearly 1 million farms

Farming Economy Collapses Crop Prices Farmers destroyed their

crops to raise crop prices by reducing the supply

Dairy farmers poured milk out onto the roads to reduce the supply and raise prices

Farmers dump milk